From Bloomberg.com:
Congressional Democrats are asking regulators whether they explored possible risks connected to Bank of America Corp. (BAC)’s moving of derivatives from Merrill Lynch into its deposit-taking unit after a credit downgrade.
Eighteen lawmakers signed onto letters from Representative Brad Miller and Senator Sherrod Brown seeking information about whether agencies consulted on the transfer considered the potential impact on the bank’s health and customer accounts.
“Because of the favored treatment of derivative contracts in receivership, it appears highly likely that losses on derivatives would result in losses to insured deposits ultimately borne by taxpayers,” Miller wrote in his letter, which was signed by eight House Democrats. The transfers were first reported by Bloomberg News on Oct. 18.
Democratic lawmakers, many of whom sought Dodd-Frank Act amendments to wall off banks’ customer deposits from risky businesses such as derivatives trading, are pressing the Financial Stability Oversight Council for information on its role and oversight of the transaction.
Bank of America, based in Charlotte, North Carolina, transferred derivatives after a September downgrade by Moody’s Investors Service spurred some partners of the bank’s Merrill Lynch brokerage unit to ask that contracts be moved to the higher-rated retail bank, according to people familiar with the transactions....read on
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